CAN E-BANKING SERVICES BE PROFITABLE?

Over the last few years European banks have spent billions of euros on new electronic channels. However, after some years of excitement it was clear that the banks’ long-awaited sky-rocketing profits from this area would not be netted. Estonian banks have also invested in expanding and improving the IT systems and a number of new e-banking services have been developed. Until recently, most of the pricing decisions for e-bank services were made on the basis of a gut feeling as the current financial management information systems did not support such analysis. In this article the author explores the implementation techniques of Activity-Based Costing (ABC) in the banking sector on the example of an Estonian bank in order to analyze the cost structure for traditional and electronic channel transactions. The article shows how it is possible to implement ABC in banking and proves empirically that electronic channels help reduce the costs of both banks and their clients.